Can Telcos Stop the Decline in Profitability?

All 3 telcos have reported their financial results for the quarter ending Dec 2016. Both M1 and Starhub reported a significant drop in net profit of 27.1% and 33.2% respectively while Singtel reported a slight 1.8% rise in net profit. Starhub even dropped a bombshell by announcing that dividends for 2017 will be cut by 20% to 16 cents. Can telcos stop the decline in profits, or will profits continue to decline? As M1 is closest to a pure mobile telco company, this analysis is carried out using M1’s results.

Fig. 1 below shows the overall service revenue and costs excluding handset sales, which are very volatile. As shown below, the service revenue is fairly stable, hovering around $200M per quarter in FY2015 and FY2016. Service costs, however, are on the rise, especially in the last 2 quarters, leading to a decline in quarterly profits…